Description
Highlighting different parts of the annual report and its content.
LOGO
ANNUAL REPORT AND ITS CONTENTS
LOGO
Financial Reporting
• Financial Reporting can be defined as
“ Communication of published financial statements and related information from a business enterprise to third parties including shareholders, creditors, customers, government authorities and the public ”. • Financial reporting includes not only financial statements but also information about an enterprise ‘s resources ,obligations and earnings.
Contents of annual report
• Non-audited information
• Narrative items – Chairman’s statement – Directors’ report – Operating and financial review – Review of operations – Statement of corporate governance – Auditors report – Statement of directors’ responsibilities for the financial statements – Shareholder information • Non-narrative – Highlights – Historical summary – Shareholder analysis
• Balance sheet • A balance sheet is a statement of the resources owned and controlled by a business at a single point in time. • It gives a snapshot of assets, liabilities and capital at a point in time. • It provides information about the company’s funds and how they are used in the business. • Profit and loss account • The Profit and Loss Account is a statement which shows total business revenue less expenses. • The P&L account quantifies and explains the gains or losses of the company over the period of time bounded by two balance sheets • It provides a summary of the year’s trading activities: – Revenue from sales (turnover) – Business costs – Profit or (loss) – How the profit was used.
•
•
Cash flow statement • This is a statement which shows the flow of cash into and out of the business. • It is not the same as a profit and loss account. • The cash flow statement only records movements of cash and, for example, does not include credit sales or purchases until such time as cash actually flows. • This statement became mandatory because of some high profile business failures of the 1980s/90s - these were companies that, in terms of the P&L, were profitable but were short of cash to pay their debts. • The cash flow statement should not be confused with a cash flow forecast. The former is historical whereas the latter is a forecast about the future. Statement of total recognized gains and losses • The STRGL is a financial statement which attempts to highlight all shareholder gains and losses and not just those from trading. • It is a summary of all the profits and losses made during the year. • It is necessary because not all gains and losses are shown on the P and L account. • Example: upward revaluation of a fixed asset is not classed as revenue from trading operations and so it will not shown up on the P and L Account. It does show up as an addition to revaluation reserves on the balance sheet
•
•
Notes to the accounts • Provides a more detailed analysis of some of the entries in the accounts including: • Disclosure of accounting policies used (e.g. depreciation) and any changes to these policies. • An explanation for any deviation from accounting standards. • Sources of turnover from different geographical areas. • Details of fixed assets, investments, share capital, debentures and reserves. • Directors emoluments (how much the Directors earned) • Earnings per share Accounting policies • Companies must describe the accounting polices they use in preparing financial statements. • Companies have a choice of accounting polices in many areas such as foreign currencies, goodwill, pensions, sales and stocks. • As different accounting polices will result in different figures it is necessary to state the policy that was used so that readers of the accounts can make an informed judgement about performance. • It is also important to state the effect of any changes in accounting policies – restating prior year numbers where this is materially significant
•
•
Chairpersons statement • An overview of the trading year. • A personalize overview of the company’s performance over the past year. • Usually covers strategy, financial performance and future prospects. Directors’ Report • Its principal objective is to supplement the financial information with other information consider necessary for a full appreciation of the companies activities. It includes: • A description of the principal activities of the company. • A fair review of the current and future prospects of the business. • Information on the sale, purchase or valuation of assets. • Recommended dividends. • Employee statistics. • Names of directors and their interests. • Details of political or charitable donations.
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•
•
Operating and financial review • This is a statement in the annual report which provides a formalised, structured explanation of financial performance. • The operating review covers items such as operating results, profit and dividend. • The financial review discusses items such as capital structure and treasury policy. Operating and financial review Operating review • New product development • Details of shareholders returns • Risks and uncertainties • Future investment • Sensitivity of financial results to specific accounting policies Financial review • Current cash position. • Sources of finding. • Treasury policy. • Capital structure. • Confirmation of the business as a going concern. • Factors outside the balance sheet impacting on the value of the business. • Taxation.
•
•
Other features • Highlights – An “at a glance” summary of selected figures and ratios. • Historical summary – Five years of selected data from the balance sheet and profit and loss account – Tables and graphs to illustrate trend and comparison of turnover, profit ,dividend and earnings per share. • Shareholder analysis – Detailed analysis of the shareholders, for example by size of shareholding Auditors report • Auditors are independent accountants who are registered to carry out this work. • They also have to certify that the accounts are drawn up in accordance with the requirements of the Companies Act. • Auditors must make a brief report to confirm that the accounts give a true and fair view of the firm’s financial position.
Need of financial statements
• Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the stockholders. Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are often used by investors and are prepared by professionals (financial analysts), thus providing them with the basis for making investment decisions. Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures. Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company. Vendors who extend credit to a business require financial statements to assess the creditworthiness of the business. Media and the general public are also interested in financial statements for a variety of reasons.
Financial statements may be used by users for different purposes
• •
•
• • •
Components Of Financial Statements
1. 2. 3. 4.
The Balance Sheet The Profit and Loss account Statement Of Retained Earnings A statement of other changes in owner’s Equity 5. Statement of Changes in financial position
Objectives of financial reporting
1. Providing information 2. Receipts and Payments 3. Economic Resources
Preparation and Presentation of Corporate Final Accounts and Reports
• Companies Act 1956 has laid down certain provisions for preparation and presentation of financial statements of a company. • ICAI has also issued AS for preparing financial statements of a company. • The financial statements are required to be presented to the shareholders at every Annual General Meeting. • The Director’s Report and the Auditor’s Report are also presented along with these statements. • The P&L account and the Balance Sheet should be signed by the secretary and atleast two directors of the company. • Accounts should be maintained on accrual basis. • Companies must follow Double Entry system of Accounting.
Forms of presentation of Final Accounts
? Section 211 of the Companies Act , 1956 provides that the final accounts of companies must be prepared and presented in the prescribed format. ? The Schedule VI of the Act provides that the accounts can be presented in the prescribed format. ? There are two forms of accounts: Horizontal Form and Vertical Form ? Schedule VI is divided into three parts: Part I Balance Sheet Part II Profit & Loss Account Part III Interpretation of certain Items
Part I – Balance Sheet
• The balance sheet is presented in vertical format. • The figures for major group or headings should be shown in the statement. • This should be supplemented by schedules to give the detailed information required to be disclosed. • The figures for the preceding year should be stated in the separate column. • Significant accounting policies adopted for preparing and presenting the statements should be shown separately under a different schedule. • A footnote can be shown separately for contingent liabilities.
Part II – Profit & Loss Account
• The Companies Act, 1956 has not prescribed any format for the profit & loss account. • Part II of Schedule VI of the companies Act lays down certain requirements which should be compiled by every company. • The Profit and Loss account shall disclose every material facts including credit receipts and debits or expenses in respect of non recurring or exceptional transactions.
Part III – Interpretation of Certain Items
• Disclosure of Accounting Policies 1. All significant accounting policies adopted should be disclosed so as to form part of financial statements. 2. Any change in policy which has a material effect should be disclosed together with monetary effect of such change. 3. If fundamental assumptions are not followed or applicable, the fact should be disclosed.
LOGO LOGO
Analysis and Interpretation of Annual Reports of Companies
Analysis and Interpretation
• The term Analysis means methodical classification of the data given in the financial statement. • The term Interpretation means explaining the meaning and significance of the data. • The Company’s Act 1956 section 210 provides that the management of every company should submit an annual report to the shareholders regarding the company’s operations and financial position.
Chairman’s Statement
• Chairman’s statement is a letter addressed by the chairman of the company to its shareholders. • It is given at the beginning of the Annual Report. • As the chairman is the leader of the BOD , he normally gives a statement about the company’s progress to the shareholders. • It gives idea about the progress of business, business growth and development , problems faced , vision , mission etc. • He expresses his opinion about value, vision , strategy and execution of policies in the statement. • Finally the chairman thanks the shareholders for their confidence in the company’s management in the process of transformation.
Chairman's Speech
• The chairman’s speech is delivered by the chairman in the AGM by the chairman. • It gives a complete account of the affairs of the company during the year for the information of its members. • A printed copy of the chairman’s speech may be distributed to the shareholders in the AGM. • The chairman’s speech is also published in the newspapers after the meeting for the information of the stakeholders. • It throws light on current business conditions, implementation of national plans, future development plans, efforts made towards satisfaction of customers , research and development plans, labour and industrial relations.
Director’s Report
• Section 217 of the companies Act, 1956 provides that the balance sheet and profit & loss account should be presented before the AGM. It also provides that the Director’s Report must be accompanied as a statutory requirement.
Director’s Report
• Board’s report shall also include a Director’s responsibility statement including thereon: 1. 2. That the preparation of the annual accounts, the applicable AS has been followed along with proper explanation relating to material departures. That the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are responsible and prudent so as to give true and fair view of the state of affairs of the company for that period. That the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. That the directors have prepared the annual accounts on going concern basis.
3.
4.
Management Discussion and Analysis
• Management discussion and analysis report forms part of annual report.
• It includes discussion on the industry structure and developments,
opportunities and threats segment or product- based performance, outlook, risks and concerns, internal control systems and their adequacy,
financial performance vis-a vis operational performance and material
developments in human resources and industrial relations.
Corporate Governance Disclosure
• Corporate Governance is a system of management under which direction
and control of the company is in the best interest of the stakeholders and
others ensuring greater transparency and better and timely financial reporting.
• The auditor should ascertain from the minutes of the meetings of the
Board whether the company has set up an audit committee in compliance with conditions of corporate governance as laid down in clause 49 of the
Listing Agreement ( as directed by SEBI) and Section 292 A of the
Companies Act.
Compliance certificate in Corporate Governance Auditor’s Report
• The company auditor on his part will certify compliance of the conditions
of corporate governance applying the Auditing and Assurance Standards and code of conduct.
• In case the auditor finds compliance with conditions of corporate
governance, he would issue a certificate to that effect. If there is non – compliance with any mandatory requirements, the auditor may give a
qualified or adverse report.
Annexure to Auditor’s Report
• The Auditor is required to make a report to the members of the company
under section 227 ( 2 ) of the Companies Act, 1956:
a) b) On the accounts examined by him On every balance sheet and profit and loss account which are laid before the company in general meeting during his tenure of office c) On every document declared to be a part of or annexed to the Balance Sheet and Profit & Loss Account.
Auditor’s Report
• The auditor should refer expressly in his report to the following: 1. Whether the financial statements have been audited in accordance with
generally accepted auditing standards and practices
2. Whether in his opinion the financial statements give a true and fair view of the state of affairs
3.
Any matter to be included in his report according to the relevant law or
other requirements.
doc_691210415.pptx
Highlighting different parts of the annual report and its content.
LOGO
ANNUAL REPORT AND ITS CONTENTS
LOGO
Financial Reporting
• Financial Reporting can be defined as
“ Communication of published financial statements and related information from a business enterprise to third parties including shareholders, creditors, customers, government authorities and the public ”. • Financial reporting includes not only financial statements but also information about an enterprise ‘s resources ,obligations and earnings.
Contents of annual report
• Non-audited information
• Narrative items – Chairman’s statement – Directors’ report – Operating and financial review – Review of operations – Statement of corporate governance – Auditors report – Statement of directors’ responsibilities for the financial statements – Shareholder information • Non-narrative – Highlights – Historical summary – Shareholder analysis
• Balance sheet • A balance sheet is a statement of the resources owned and controlled by a business at a single point in time. • It gives a snapshot of assets, liabilities and capital at a point in time. • It provides information about the company’s funds and how they are used in the business. • Profit and loss account • The Profit and Loss Account is a statement which shows total business revenue less expenses. • The P&L account quantifies and explains the gains or losses of the company over the period of time bounded by two balance sheets • It provides a summary of the year’s trading activities: – Revenue from sales (turnover) – Business costs – Profit or (loss) – How the profit was used.
•
•
Cash flow statement • This is a statement which shows the flow of cash into and out of the business. • It is not the same as a profit and loss account. • The cash flow statement only records movements of cash and, for example, does not include credit sales or purchases until such time as cash actually flows. • This statement became mandatory because of some high profile business failures of the 1980s/90s - these were companies that, in terms of the P&L, were profitable but were short of cash to pay their debts. • The cash flow statement should not be confused with a cash flow forecast. The former is historical whereas the latter is a forecast about the future. Statement of total recognized gains and losses • The STRGL is a financial statement which attempts to highlight all shareholder gains and losses and not just those from trading. • It is a summary of all the profits and losses made during the year. • It is necessary because not all gains and losses are shown on the P and L account. • Example: upward revaluation of a fixed asset is not classed as revenue from trading operations and so it will not shown up on the P and L Account. It does show up as an addition to revaluation reserves on the balance sheet
•
•
Notes to the accounts • Provides a more detailed analysis of some of the entries in the accounts including: • Disclosure of accounting policies used (e.g. depreciation) and any changes to these policies. • An explanation for any deviation from accounting standards. • Sources of turnover from different geographical areas. • Details of fixed assets, investments, share capital, debentures and reserves. • Directors emoluments (how much the Directors earned) • Earnings per share Accounting policies • Companies must describe the accounting polices they use in preparing financial statements. • Companies have a choice of accounting polices in many areas such as foreign currencies, goodwill, pensions, sales and stocks. • As different accounting polices will result in different figures it is necessary to state the policy that was used so that readers of the accounts can make an informed judgement about performance. • It is also important to state the effect of any changes in accounting policies – restating prior year numbers where this is materially significant
•
•
Chairpersons statement • An overview of the trading year. • A personalize overview of the company’s performance over the past year. • Usually covers strategy, financial performance and future prospects. Directors’ Report • Its principal objective is to supplement the financial information with other information consider necessary for a full appreciation of the companies activities. It includes: • A description of the principal activities of the company. • A fair review of the current and future prospects of the business. • Information on the sale, purchase or valuation of assets. • Recommended dividends. • Employee statistics. • Names of directors and their interests. • Details of political or charitable donations.
•
•
•
Operating and financial review • This is a statement in the annual report which provides a formalised, structured explanation of financial performance. • The operating review covers items such as operating results, profit and dividend. • The financial review discusses items such as capital structure and treasury policy. Operating and financial review Operating review • New product development • Details of shareholders returns • Risks and uncertainties • Future investment • Sensitivity of financial results to specific accounting policies Financial review • Current cash position. • Sources of finding. • Treasury policy. • Capital structure. • Confirmation of the business as a going concern. • Factors outside the balance sheet impacting on the value of the business. • Taxation.
•
•
Other features • Highlights – An “at a glance” summary of selected figures and ratios. • Historical summary – Five years of selected data from the balance sheet and profit and loss account – Tables and graphs to illustrate trend and comparison of turnover, profit ,dividend and earnings per share. • Shareholder analysis – Detailed analysis of the shareholders, for example by size of shareholding Auditors report • Auditors are independent accountants who are registered to carry out this work. • They also have to certify that the accounts are drawn up in accordance with the requirements of the Companies Act. • Auditors must make a brief report to confirm that the accounts give a true and fair view of the firm’s financial position.
Need of financial statements
• Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the stockholders. Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are often used by investors and are prepared by professionals (financial analysts), thus providing them with the basis for making investment decisions. Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures. Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company. Vendors who extend credit to a business require financial statements to assess the creditworthiness of the business. Media and the general public are also interested in financial statements for a variety of reasons.
Financial statements may be used by users for different purposes
• •
•
• • •
Components Of Financial Statements
1. 2. 3. 4.
The Balance Sheet The Profit and Loss account Statement Of Retained Earnings A statement of other changes in owner’s Equity 5. Statement of Changes in financial position
Objectives of financial reporting
1. Providing information 2. Receipts and Payments 3. Economic Resources
Preparation and Presentation of Corporate Final Accounts and Reports
• Companies Act 1956 has laid down certain provisions for preparation and presentation of financial statements of a company. • ICAI has also issued AS for preparing financial statements of a company. • The financial statements are required to be presented to the shareholders at every Annual General Meeting. • The Director’s Report and the Auditor’s Report are also presented along with these statements. • The P&L account and the Balance Sheet should be signed by the secretary and atleast two directors of the company. • Accounts should be maintained on accrual basis. • Companies must follow Double Entry system of Accounting.
Forms of presentation of Final Accounts
? Section 211 of the Companies Act , 1956 provides that the final accounts of companies must be prepared and presented in the prescribed format. ? The Schedule VI of the Act provides that the accounts can be presented in the prescribed format. ? There are two forms of accounts: Horizontal Form and Vertical Form ? Schedule VI is divided into three parts: Part I Balance Sheet Part II Profit & Loss Account Part III Interpretation of certain Items
Part I – Balance Sheet
• The balance sheet is presented in vertical format. • The figures for major group or headings should be shown in the statement. • This should be supplemented by schedules to give the detailed information required to be disclosed. • The figures for the preceding year should be stated in the separate column. • Significant accounting policies adopted for preparing and presenting the statements should be shown separately under a different schedule. • A footnote can be shown separately for contingent liabilities.
Part II – Profit & Loss Account
• The Companies Act, 1956 has not prescribed any format for the profit & loss account. • Part II of Schedule VI of the companies Act lays down certain requirements which should be compiled by every company. • The Profit and Loss account shall disclose every material facts including credit receipts and debits or expenses in respect of non recurring or exceptional transactions.
Part III – Interpretation of Certain Items
• Disclosure of Accounting Policies 1. All significant accounting policies adopted should be disclosed so as to form part of financial statements. 2. Any change in policy which has a material effect should be disclosed together with monetary effect of such change. 3. If fundamental assumptions are not followed or applicable, the fact should be disclosed.
LOGO LOGO
Analysis and Interpretation of Annual Reports of Companies
Analysis and Interpretation
• The term Analysis means methodical classification of the data given in the financial statement. • The term Interpretation means explaining the meaning and significance of the data. • The Company’s Act 1956 section 210 provides that the management of every company should submit an annual report to the shareholders regarding the company’s operations and financial position.
Chairman’s Statement
• Chairman’s statement is a letter addressed by the chairman of the company to its shareholders. • It is given at the beginning of the Annual Report. • As the chairman is the leader of the BOD , he normally gives a statement about the company’s progress to the shareholders. • It gives idea about the progress of business, business growth and development , problems faced , vision , mission etc. • He expresses his opinion about value, vision , strategy and execution of policies in the statement. • Finally the chairman thanks the shareholders for their confidence in the company’s management in the process of transformation.
Chairman's Speech
• The chairman’s speech is delivered by the chairman in the AGM by the chairman. • It gives a complete account of the affairs of the company during the year for the information of its members. • A printed copy of the chairman’s speech may be distributed to the shareholders in the AGM. • The chairman’s speech is also published in the newspapers after the meeting for the information of the stakeholders. • It throws light on current business conditions, implementation of national plans, future development plans, efforts made towards satisfaction of customers , research and development plans, labour and industrial relations.
Director’s Report
• Section 217 of the companies Act, 1956 provides that the balance sheet and profit & loss account should be presented before the AGM. It also provides that the Director’s Report must be accompanied as a statutory requirement.
Director’s Report
• Board’s report shall also include a Director’s responsibility statement including thereon: 1. 2. That the preparation of the annual accounts, the applicable AS has been followed along with proper explanation relating to material departures. That the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are responsible and prudent so as to give true and fair view of the state of affairs of the company for that period. That the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities. That the directors have prepared the annual accounts on going concern basis.
3.
4.
Management Discussion and Analysis
• Management discussion and analysis report forms part of annual report.
• It includes discussion on the industry structure and developments,
opportunities and threats segment or product- based performance, outlook, risks and concerns, internal control systems and their adequacy,
financial performance vis-a vis operational performance and material
developments in human resources and industrial relations.
Corporate Governance Disclosure
• Corporate Governance is a system of management under which direction
and control of the company is in the best interest of the stakeholders and
others ensuring greater transparency and better and timely financial reporting.
• The auditor should ascertain from the minutes of the meetings of the
Board whether the company has set up an audit committee in compliance with conditions of corporate governance as laid down in clause 49 of the
Listing Agreement ( as directed by SEBI) and Section 292 A of the
Companies Act.
Compliance certificate in Corporate Governance Auditor’s Report
• The company auditor on his part will certify compliance of the conditions
of corporate governance applying the Auditing and Assurance Standards and code of conduct.
• In case the auditor finds compliance with conditions of corporate
governance, he would issue a certificate to that effect. If there is non – compliance with any mandatory requirements, the auditor may give a
qualified or adverse report.
Annexure to Auditor’s Report
• The Auditor is required to make a report to the members of the company
under section 227 ( 2 ) of the Companies Act, 1956:
a) b) On the accounts examined by him On every balance sheet and profit and loss account which are laid before the company in general meeting during his tenure of office c) On every document declared to be a part of or annexed to the Balance Sheet and Profit & Loss Account.
Auditor’s Report
• The auditor should refer expressly in his report to the following: 1. Whether the financial statements have been audited in accordance with
generally accepted auditing standards and practices
2. Whether in his opinion the financial statements give a true and fair view of the state of affairs
3.
Any matter to be included in his report according to the relevant law or
other requirements.
doc_691210415.pptx